Housing Market Update: Hottest January on Record
Pending sales posted their first annual decline since June 2020, stalled due to a lack of supply. Early spring has the potential to be even hotter and more volatile: stock-market declines, mortgage-rate increases, and mounting affordability pressures are escalating the sense of urgency for buyers and as a result the limited inventory of homes are seeing their values skyrocket at unheard of rates.
While dwindling housing inventory continues to be a source of frustration across the country, Washington has been hit harder by the housing crisis than any other state, according to a new study by the Washington State Department of Commerce.
Washington ranks last among 50 states in the ratio of housing units to the number of existing households, the EcoNorthwest study revealed. For every household, Washington has roughly a single unit or less of housing. This equates to 1.05 units of housing per single household in King County and 1.04 in Snohomish, compared to the country’s average ratio of 1.14 units.
Consequently, housing has become less affordable. Western Washington is currently adding 55,000 additional people per year who will need housing and there are less than 4,000 total homes available to purchase through the NWMLS system. Housing scarcity will remain a problem as long as demand outpaces supply, and currently there are no signs of significant relief.
Those are just some of the adjectives being thrown about concerning the local Western Washington housing market.
Just two weeks ago we predicted that January would be a competitive month as buyers rush to find a home before mortgage rates climb—and that's exactly what we're seeing.
A quick search online shows many examples. This Kirkland home sold for $500,000 over asking. This house in Bellevue, listed at $1.5 million, sold for $2.4 million— about $900,000 over asking price.
Prices surged last week 16% over 2021, kicking off what could be the most competitive month in housing history.
Projections are homes listed by March and closing in April will see the maximum number of bidding wars and escalating prices.
When is the best time to sell in 2022?
While there will always be variables such as quality of upgrades, location, and market conditions such as lack of inventory we are facing a unique situation in 2022.
1) Interest rates are predicted to increase to 3.7 possible by as early as June and be around 4% by year's end.
2) Conforming loans also received a huge increase from the 2021 cap of $776,250 up to $891,250. That’s an increase of $115,000 and adds much more buying power early before the interest rate increases.
3) We are also faced with historically low inventory. In fact, inventory has dropped 90% in the past 10 years, and we currently only have a little over 4,000 homes for sale in all of Western Washington with a population of 5.5 million people. Additionally, we are projected to add upwards of 200,000 more people per year for the next 10 years.
All of this creates a perfect storm for listing early in 2022.
- Frustrated buyers with pent up demand seeing projections of homes increasing another 18 to 20% for 2022.
- Increased buying power of $115,000 for conforming loan limits.
- Pressure to buy NOW while rates remain closer to 3%.
So how can you win in a Bidding War/Multiple Offer situation?
We looked at the data on thousands of offers agents for The Cascade Team wrote and received in the last two years to see how the strategies we track affected buyers’ odds of winning a bidding war:
All cash offers rule the landscape and stymie the competition. With everything else equal, offering with all cash nearly doubles your chance of getting your offer accepted in a bidding war situation. In fact, for the luxury market, (which we defined as the top 10 percent of the market by list price), an all-cash offer increases a buyer’s odds of success more than fourfold.
Cash is king and gives buyers a leg up in the negotiation because it ensures the fastest and most seamless transaction, without the involvement of a loan, underwriting or appraisal, which, if things don’t go according to plan, can quickly cause problems or delay closing, even for the most well-intentioned buyers.
Winning at a multiple offer presentation begins with understanding how you can put your very best foot forward. There are many ways to make an offer look attractive and not all sellers care only about the price; many of them care about time and convenience. A strong agent tries to find all the possible pain points for the seller and then crafts an offer with their buyers that address those points. There are many different rules (depending on your area of practice) that govern how multiple offers are to be handled and it is in an agents’ best interest to be up on the laws and guidelines in their area.
The first step to putting together a winning offer is preparation and giving sellers choices so your offer is as strong as possible. Buyers need to be fully aware of the importance of being competitive and strong on paper when trying to buy a home that will have offers coming in at the same time. Sometimes it is the littlest things that will make the difference to the seller. Most agents naturally think of things like greater earnest money or cash versus financing, but a seller might be swayed by another small detail. Perhaps a shorter closing date or even a longer closing date would be more attractive to the seller; it is their job as your agent to make sure you have all the bases covered when it comes to the offer presentation. Some agents representing the buyer are even including a flexible closing date clause that allows the seller to choose the closing date they want from a list of possible date range (for example: any date between April 15th and May 31st). This gives the seller the ability to customize the closing date to their liking without having to counter to the one specific date that might be in the offer. Remember, any counter changes the offer and therefore can be an out for the buyer and may be a risk the seller may not want to take.
There are other things that agents are doing now to get their offers noticed in a multiple offer presentation:
1) ESCALATION CLAUSES – Buyers need to understand the importance of them addressing the potential competing offers’ price points. Escalation clauses and acceleration clauses are common practice in a multiple offer situation and need to be used correctly.
2) DOWN PAYMENT – Many sellers find a larger down payment attractive because they feel this shows stronger intent from the buyers and less likelihood that the buyer will walk away from the transaction.
3) FINANCING VERSUS CASH – In most cases sellers prefer cash offers over financed ones because this eliminates the sellers’ need for an appraisal, the opportunity that something could go wrong with either that or the loan process. But I have seen many sellers in my time accept offers that require financing because the offer was higher in price.
4) INSPECTION VERSUS PRE-INSPECTION – Many buyers are doing pre-inspections so they can go in with clean offers. This is also attractive to sellers because it eliminates the worry of the seller thinking the inspection might uncover something that could be problematic and potentially damaging to the sale.
5) TITLE REVIEW – Many buyers are waiving title review contingencies so they can eliminate the possibility that the seller won’t accept their offer because there is still something that needs to be approved prior to the property selling.
6) BUYER LETTERS – In compliance with Fair Housing Laws; Brokers/Agents working at The Cascade Team are asked to NOT include any Buyer letters or allow them to be received with offers on properties they represent. (Full Details HERE)
7) APPRAISAL ISSUES – If the buyer is using financing to purchase the property and depending on how much available cash they have for this property it is important to address the burning question the seller might have about the buyers’ ability to purchase the property even in the event the appraisal comes in short. Many agents are including clauses that are very specific about the amount the buyer is willing to accept if the appraisal is low and then they are disclosing how they will address this.
8) BUYER TO CLEAN HOUSE – Savvy agents are urging their buyers to put in a clause that says that they buyer will have the home cleaned so seller does not need to clean the home. Some sellers have found this very appealing because the last thing they want to do when moving is clean the house they are leaving.
9) BUYER TO REMOVE GARBAGE FROM HOUSE- When competing in a multiple offer situation you have to assess the possible pain points of the sellers. Whenever a seller moves there is bound to be a lot of garbage that will need to be removed from the home prior to the buyer taking possession of the home. Allowing the sellers to leave their garbage in the garage and the buyer will remove is very appealing to the sellers.
10) BUYER TO ALLOW RENT BACK – Giving the seller the option to do a short-term rent back is often the determining factor for a seller. Never underestimate the power of convenience in your multiple offer negotiations.
11) MOVING CREDIT – Including a moving credit for the sellers to cover their moving expenses is just another thing you have in your toolbox to offer sellers to sweeten your clients’ offer.
12) DELAYED POSSESSION – Sellers often want to sell but get overwhelmed when the timing of the closing is discussed. Giving the sellers the option to have the buyer take possession of the property at a time that is more suitable to the seller or that has been delayed to benefit the seller is another type of potential perk the seller might find attractive.
Whenever you are a buyer in a multiple offer situation you need to sit down and ask yourself if you have given yourself every possible chance of winning. By going through all the tools, you have in your multiple offer toolbox and using the ones you feel will best suit the offer situation you are presented with, a good Real Estate Agent and careful preparation of the offer will help you win more multiple offer presentations.